Netflix Reports Weak Guidance As It Ramps Content Spending

Netflix - Another Rally: The Froth Bubbles Further

The stock market rallied again on Thursday. S&P 500 was up 0.76%, the Nasdaq increased 0.71%, and the Russell 2000 increased 0.86%. The stock market is very overbought.

Stocks rallied on the report in the Wall Street Journal that America would lower tariffs on China to get a trade deal. Even though the U.S. Treasury denied this rumor, stocks only gave back some of the gains that were catalyzed by the rumor. I don’t know what to make of this situation because I could see either possibility being correct.

Sometimes reports are wrong; however, this could be the government not wanting to discuss secret plans.

It’s worth pointing out that stocks will probably rally if a trade deal is done. According to Bank of America’s analysis, the stock market has rallied this year because of lower trade tensions.

It is impossible to prove what is causing stocks to rally. My instinct is to believe the rally won’t be as strong at these levels as it would have been at the low on Christmas Eve.

VIX fell 5.15% to 18.06. CNN fear and greed index is at 44 which is near the high end of fear. One more rally will push it to neutral or greed. The market is extremely frothy as the economic and earnings reports look weak. But stocks continue their uptrend. The S&P 500 is up 5.15% year to date; it is now above the high end of what I consider the best case scenario for stocks this year.

Netflix Tells Us About The Market

Netflix (NFLX) is the best signpost for the level of speculation in the stock market because its business is highly leveraged towards growth.

Specifically, Netflix spends money on content to grow its subscription base and watch time. The firm never stops spending which pressures free cash flow and profitability. This extremely aggressive positioning has allowed it to have explosive subscription growth domestically and abroad.